Company insolvencies climb as last Insolvency Statistics of 2020 published
Although if we’re honest, although it’s early days, things do seem a lot like 2020 don’t they?
It’s dark, cold, miserable, we’re still mainly locked down and many businesses still aren’t allowed to open.
Throughout it all though, our friends at The Insolvency Service have continued to track all the company insolvency activity and have published their figures for December 2020.
In December there were a total of 1,228 company insolvencies in England and Wales with an additional 57 in Scotland and 9 from Northern Ireland which makes the UK total 1,294 – a rise from November’s 942 which is up an eye-catching 37.8% on the previous month
This is the first time that the numbers of company insolvencies were higher than the comparable month in 2019 since the start of the first UK lockdown in March. The percentage rise is 9.2%.
The Insolvency Service note that statistics for individual months have more potential for volatility and explicitly note that it’s too soon to tell whether this represents an emerging trend, especially as the insolvency numbers for December 2019 were themselves low compared to the rest of the year.
They will complete further analysis of long-term trends in the quarterly statistics bulletin for Q4 2020 which will be published later this month.
In a straight comparison to 12 months previously compulsory liquidations were 80% lower, CVLs were 26% higher, administrations were up 7% and there are twice as many CVAs although the number was admittedly small by pre-lockdown numbers.
There were more cases in every single category than the previous month and it will be interesting to understand The Insolvency Service’s analysis for this.
Company Voluntary Liquidations (CVLs) remains the most frequent insolvency process accounting for over 75% of all recorded procedures.
This is due in the main to the financial support extended to certain companies during the pandemic and lockdowns that are due to continue at time of writing until the end of March and April this year.
The financial support combined with ongoing suspension of creditor remedies including statutory demands and winding-up petitions have created a period of pause for some businesses – allowing them to continue to function when they would otherwise be considering insolvency solutions.
The court system which has also seen a vast reduction in its opening hours and staffing levels will gradually return to normal which will allow it to process the huge backlog of cases once lockdown hopefully begins to be eased in the Spring.
This was also the first year that companies were able to obtain an insolvency moratorium as four did or have a restructuring plan sanctioned by the court which occurred twice since their introduction in the Corporate Insolvency and Governance Act 2020.
Both of these are expected to increase substantially in the forthcoming 12 months.
The dam finally breaks?
Colin Haig, President of R3 – the insolvency and restructuring trade association, said: “These figures show that the economic impact of the pandemic may now finally be pushing increasing numbers of struggling businesses and individuals over the line into formal insolvency.
“It’s a question of when, not if, insolvency numbers further increase this year – especially as the Government’s support packages, which have provided a critical safety net for businesses and individuals, are due to start running out at the end of the first quarter.
“Even if the Chancellor decides to extend them again at some point they will have to come to an end.
“Covid-19 has had a devastating impact on the UK’s economy, which fell by 8.9% in the 12 months to November 2020, and on unemployment levels, which have increased at the sharpest rate for a decade. We’ve also seen a number of big brands – including household names – enter insolvency processes or announce restructuring programmes as their operations were hampered.”
It might have been too much to expect that just beginning a New Year would wipe away the restrictions and problems every business has had to contend with in the previous 12 months.
Indeed, without any official extension of the Coronavirus business support measures being announced, the weeks and months before they are officially wound down and withdrawn might be too much of a hurdle to overcome for some companies that have managed to make it so far.
But there’s always opportunity in turbulent times – the opportunity to act and put your own business first.
Once we get a clearer view of your situation, we can prepare various likely scenarios based on decisions and choices you can make that will give your business the best chance of making it into the post-Covid economy or being able to efficiently close a business in order to rebound and restart afresh when possible.
Whatever path you decide, you can take the first steps right now while the rest of the world is just waiting.